What is the best inventory cost method? 1-LIFO 2-FIFO 3-Average

Totally depend upo the nature of business and its products

IAS -2-  iinventories  as well as IFRS dose not permit the use of last-in, first out (LIFO) furmula to measure the cost of inventories. as well as dose not permit exchange diffirence.

- The cost of inventories shall be assigned by using the first-in, first out ( FIFO) or weighted average cost furmula, an entity shall use the same cost formula for all inventories having a similar nature and use to the entity. For inventories with a different nature ore use, different cost furmulas maybe justified.

Inventories - closing balance shall be measured at the lower of cost and net realisable value whichever is less.  

- IAS dose not apply to the contracting contracts as this activity has a special standard as one of specialized activities  ( IAS-11 )

in ordinary circumstances - no inflation - i prefer weighted average 

To answer to your question, there is no best method in an absolute way. all depend on many parameters: your financial vision according to:

the inventory turnover combined to the inflation's anticipation;

the standards you use and that can exclude one of those methods;

the nature of the products (for fast consumed food the best method is FIFO);

other considerations...

•   FIFO gives us a better indication of the value of ending inventory (on the balance sheet), but it also increases net income because inventory that might be several years old is used to value the cost of goods sold. Increasing net income sounds good, but remember that it also has the potential to increase the amount of taxes that a company must pay.
• LIFO isn't a good indicator of ending inventory value because the leftover inventory might be extremely old and, perhaps, obsolete. This results in a valuation much lower than today's prices. LIFO results in lower net income because cost of goods sold is higher.
• Average cost produces results that fall somewhere between FIFO and LIFO.

Nothing best. There is the best for every kind of inventory. Like foods industry, FIFO

Supporting the answer of Mr Rasha Moursi, would like to clarify - rather than just average method, a moving average method will be most appropriate but in case of products having expiry accumane must be valued on First-Expiry-First out. Though we are taking about standards here but it is significant to keep in mind nature of product and the policy accepted by management, more important is the consistancy in application of method. As an example - a company is using product costing method will be more intersted in differing the cost and the company using vairable might not.

I see that this depends on the subject material and the external econmic parameters affecting them and the amount being dealt with during a period (month for example). For highly traded items (B2C products), average costing method will be more appropriate. for B2B items fifo will be better for no or low infaltion economies. lifo will be better for the rest.

FIFO Or wieghted Avarage.